AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 1999
FILE NO. 811-6118
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 10
TAX FREE RESERVES PORTFOLIO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO
ROGER P. JOSEPH, ESQ.
BINGHAM DANA LLP
150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
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EXPLANATORY NOTE
Tax Free Reserves Portfolio has filed this Registration Statement pursuant
to Section 8(b) of the Investment Company Act of 1940. However, beneficial
interests in the Portfolio are not being registered under the Securities Act of
1933, since such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Only investment companies, insurance company
separate accounts, common or commingled trust funds or similar organizations or
entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act may make investments in the Portfolio. This Registration
Statement is not an offer to sell, or the solicitation of an offer to buy, any
beneficial interests in the Portfolio.
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PART A
Responses to Items 1,2,3,5 and 9 have been omitted pursuant to General
Instruction B.2(b) of Form N-1A.
Item 4. Investment Objectives, Principal Investment Strategies, and Related
Risks.
PORTFOLIO GOALS
The goals of Tax Free Reserves Portfolio are to provide investors in the
Portfolio with high levels of current income exempt from federal income taxes,
preservation of capital and liquidity. The Portfolio's goals may be changed
without the approval of its investors, but not without written notice thereof
to the Portfolio's investors at least 30 days prior to implementing the change.
Of course, there is no assurance that the Portfolio will achieve its goals.
MAIN INVESTMENT STRATEGIES
o Under normal market conditions, the Portfolio invests at least 80% of
its assets in high quality municipal obligations and in participation
interests in these obligations issued by banks, insurance companies and
other financial institutions. Municipal obligations are debt securities
issued by states, cities and towns and other political or public entities
or agencies or qualifying issuers. The interest paid on these debt
securities is free from federal income tax.
o The Portfolio invests more than 25% of its assets in participation
interests in municipal obligations that are secured by bank letters of
credit or guarantees.
o The Portfolio may invest up to 20% of its assets in high quality
securities that pay interest that is subject to federal income tax or
federal alternative minimum tax.
The Portfolio's principal investment strategies are the strategies that, in the
opinion of Citibank, N.A., the Portfolio's investment adviser, are most likely
to be important in trying to achieve the Portfolio's investment goals. Of
course, there can be no assurance that the Portfolio will achieve its goals.
Please note that the Portfolio may also use strategies and invest in securities
that are not described below but that are described in Part B to this
Registration Statement.
The Portfolio complies with industry regulations that apply to money market
funds. These regulations require that the Portfolio's investments mature or be
deemed to mature within 397 days from the date purchased and that the average
maturity of the Portfolio's investments (on a dollar-weighted basis) be 90 days
or less. In addition, all of the Portfolio's investments must be in U.S.
dollar-denominated high quality securities which have been determined by
Citibank to present minimal credit risks. To be high quality, a security (or
its issuer) must be rated in one of the two highest short-term rating
categories by nationally recognized rating agencies, such as Moody's or
Standard & Poor's, or, in Citibank's opinion, be of comparable quality.
Investors should note that within these two rating categories there may be
sub-categories or gradations indicating relative quality. If the credit quality
of a security deteriorates after the Portfolio buys it, Citibank will decide
whether the security should be held or sold.
Management Style. Managers of mutual funds use different styles when selecting
securities to purchase. Citibank's portfolio managers use a "top-down" approach
when selecting securities for the Portfolio. When using a "top-down" approach,
the portfolio manager looks first at broad economic factors and market
conditions, such as prevailing and anticipated interest rates. On the basis of
those factors and conditions, the manager selects optimal interest rates and
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maturities and chooses certain sectors or industries within the overall market.
The manager then looks at individual companies within those sectors or
industries to select securities for the investment portfolio.
Since the Portfolio maintains a weighted average maturity of no more than 90
days, many of its investments are held until maturity. The manager may sell a
security before maturity when it is necessary to do so to meet redemption
requests. The manager may also sell a security if the manager believes the
issuer is no longer as creditworthy, or in order to adjust the average weighted
maturity of the Portfolio's investment portfolio (for example, to reflect
changes in the manager's expectations concerning interest rates), or when the
manager believes there is superior value in other market sectors or industries.
WHAT ARE MONEY MARKET INSTRUMENTS?
A money market instrument is a short-term IOU issued by banks or other
corporations, or the U.S. or a foreign government and state or local
governments. Money market instruments have maturity dates of 13 months or less.
Money market instruments may include certificates of deposit, bankers'
acceptances, variable rate demand notes (where the interest rate is reset
periodically and the holder may demand payment from the issuer at any time),
fixed-term obligations, commercial paper (short term unsecured debt of
corporations), asset-backed securities (which are backed by pools of accounts
receivable such as car installment loans or credit card receivables) and
repurchase agreements. In a repurchase agreement, the seller sells a security
and agrees to buy it back at a later date (usually within seven days) and at a
higher price, which reflects an agreed upon interest rate.
The Portfolio invests primarily in high quality municipal obligations,
including municipal money market instruments, and in participation interests in
municipal obligations.
WHAT ARE MUNICIPAL OBLIGATIONS?
Municipal obligations are fixed and variable rate obligations issued by or on
behalf of states and municipal governments, Puerto Rico and other U.S.
territories, and their authorities, agencies, instrumentalities and political
subdivisions, and by other qualifying issuers. The interest on these
obligations is exempt from federal income tax.
Longer term municipal obligations (municipal bonds) generally are issued to
raise funds for construction or to retire previous debt. Short term obligations
(municipal notes or commercial paper) may be issued to finance short term cash
needs in anticipation of receipt of tax and other revenues. Under normal market
conditions, the Portfolio invests at least 80% of its assets in municipal
obligations and participation interests. These policies cannot be changed
without a vote of investors.
Municipal obligations bought by the Portfolio must be rated in the highest two
rating categories of nationally recognized rating agencies or determined by
Citibank to be of comparable quality.
The Portfolio invests in both "general obligation" securities, which are backed
by the full faith, credit and taxing power of the issuer, and in "revenue"
securities, which are payable only from revenues from a specific project or
another revenue source. The Portfolio also invests in private activity bonds,
which fund privately operated industrial facilities. Payment on these bonds
generally is made from payments by the operators of the facilities and is not
backed by the taxing authority of the issuing municipality. The Portfolio
invests in municipal lease obligations, which are undivided interests issued by
a state or municipality in a lease or installment purchase which generally
relates to equipment or facilities. In some cases payments under municipal
leases do not have to be made unless money is specifically approved for that
purpose by an appropriate legislative body.
The Portfolio may purchase municipal obligations under arrangements (called
stand-by commitments) where it can sell the securities at an agreed-upon price
and date under certain circumstances. The Portfolio can also purchase
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securities under arrangements (called when-issued or forward-delivery basis)
where the securities will not be delivered immediately. The Portfolio will set
aside the assets to pay for these securities at the time of the agreement.
The Portfolio will concentrate in participation interests issued by banks and
other financial institutions and secured by bank letters of credit or
guarantees. This means that the Portfolio will invest more than 25% of its
assets in participation interests backed by banks. In a participation interest,
the bank sells undivided interests in a municipal obligation it owns. These
interests may be supported by a bank letter of credit or guarantee. The
interest rate generally is adjusted periodically, and the holder can sell back
to the issuer after a specified notice period. If interest rates rise or fall,
the rates on participation interests and other variable rate instruments
generally will be readjusted. As a result, these instruments do not offer the
same opportunity for capital appreciation or loss as fixed rate instruments.
The Portfolio may also invest in taxable money market instruments, particularly
if the after-tax return on those securities is greater than the return on
municipal money market instruments. The Portfolio's taxable investments will be
comparable in quality to its municipal investments. Under normal circumstances,
not more than 20% of the Portfolio's assets are invested in taxable
instruments. Except for its policy to invest in municipal obligations, the
Portfolio's investment goals and policies may be changed without a vote of
investors.
Defensive Strategies. The Portfolio may, from time to time, take temporary
defensive positions that are inconsistent with its principal investment
strategies in attempting to respond to adverse market, political or other
conditions. When doing so, the Portfolio may invest without limit in high
quality taxable money market instruments, and may not be pursuing its
investment objectives.
MAIN RISKS
Investing in a mutual fund involves risk, including the risk that you may
receive little or no return on your investment or even that you may lose part
or all of your investment. Before investing, you should consider the risks you
will assume. Certain of these risks are described below.
o Non-diversified Status. The Portfolio is a non-diversified mutual fund.
This means that the Portfolio may invest a relatively high percentage of
its assets in the obligations of a limited number of issuers. The
Portfolio also may invest 25% or more of its assets in securities the
issuers of which are located in the same state, that derive interest from
similar type projects or that are otherwise related. As a result, many
securities held by the Portfolio may be adversely affected by a particular
single economic, business, regulatory or political event. You should
consider the greater risk inherent in these policies when compared with a
more diversified mutual fund.
o Concentration. The Portfolio concentrates in participation interests
issued by banks and secured by bank letters of credit or guarantees. This
means that the value of the Portfolio's investments could decline as a
result of adverse events affecting the banking industry and that an
investment in the Portfolio may be particularly susceptible to events
affecting the banking industry. Banks are highly regulated. Decisions by
regulators may limit the loans banks make and the interest rates and fees
they charge, and may reduce bank profitability. Banks also depend on being
able to obtain funds at reasonable costs to finance their lending
operations. This makes them sensitive to changes in money market and
general economic conditions. When a bank's borrowers get in financial
trouble, their failure to repay the bank will also affect the bank's
financial situation.
o Interest Rate Risk. The Portfolio invests in short term money market
instruments. As a result, the amount of income paid to you by the
Portfolio will go up or down depending on day-to-day variations in short
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term interest rates. A major increase in interest rates could cause the
value of your investment in the Portfolio to decline. Investing in high
quality, short-term instruments may result in a lower yield (the income on
your investment) than investing in lower quality or longer-term
instruments.
o Credit Risk. The Portfolio invests in high quality debt securities,
meaning securities that are rated, when the Portfolio buys them, in one of
the two highest short term rating categories by nationally recognized
rating agencies or, in Citibank's opinion, are of comparable quality.
However, it is possible that some issuers will be unable to make the
required payments on debt securities held by the Portfolio. Debt
securities also fluctuate in value based on perceived creditworthiness of
issuers. A default on an investment held by the Portfolio, or a
significant decline in the value of a Portfolio investment, could cause
the value of your investment in the Portfolio to decline.
o Year 2000. The Portfolio could be adversely affected if the computer
systems used by the Portfolio or its service providers are not programmed
to process information accurately on or after January 1, 2000. The
Portfolio, and its service providers, are making efforts to resolve any
potential Year 2000 problems. While it is likely these efforts will be
successful, the failure to implement any necessary modifications could
have an adverse impact on the Portfolio. The Portfolio also could be
adversely affected if the issuers of securities held by the Portfolio do
not solve their Year 2000 problems, or if it costs them large amounts of
money to solve these problems.
o An investment in the Portfolio is not a deposit of Citibank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
o It is possible to lose money by investing in the Portfolio.
Item 6. Management, Organization and Capital Structure.
INVESTMENT ADVISER
The Portfolio draws on the strength and experience of Citibank. Citibank is the
investment adviser of the Portfolio, and subject to policies set by the
Portfolio's Trustees, Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently manages more than
$290 billion in assets worldwide. Citibank is a wholly-owned subsidiary of
Citicorp, which is, in turn, a wholly-owned subsidiary of Citigroup Inc.
Citigroup Inc. was formed as a result of the merger of Citicorp and Travelers
Group, Inc., which was completed on October 8, 1998. Citibank's address is 153
East 53rd Street, New York, New York.
Although Citibank and its affiliates may have banking and investment banking
relationships with the issuers of securities that are held in the Portfolio, in
making investment decisions for the Portfolio Citibank does not obtain or use
material inside information acquired by any division, department or affiliate
of Citibank in the course of those relationships. Citibank and its affiliates
may have loans outstanding that are repaid with proceeds of securities
purchased by the Portfolio.
ADVISORY FEES
For the services it provided under the investment advisory agreement for the
Portfolio, for the Portfolio's fiscal year ended August 31, 1998, the
investment advisory fees paid to Citibank, after waivers, were 0.11% of the
Portfolio's average daily net assets for that fiscal year.
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CAPITAL STOCK
Investments in the Portfolio have no preference, pre-emptive or conversion
rights and are fully paid and non-assessable, except as set forth below. The
Portfolio is not required and has no current intention to hold annual meetings
of investors, but the Portfolio holds special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Investors have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of investors) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified number of
investors. Upon liquidation or dissolution of the Portfolio, investors would be
entitled to share pro rata in the net assets of the Portfolio available for
distribution to investors.
The Portfolio is organized as a trust under the laws of the State of New York.
Under the Declaration of Trust, the Trustees are authorized to issue beneficial
interests in the Portfolio. Each investor is entitled to a vote in proportion
to the value of its investment in the Portfolio. Investments in the Portfolio
may not be transferred, but an investor may withdraw all or any portion of its
investment at any time at net asset value. Investors in the Portfolio (e.g.,
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, it is not expected that the liabilities of the Portfolio would ever
exceed its assets.
Item 7. Investor Information.
HOW NET INCOME IS CALCULATED
The Portfolio calculates its net income at 12:00 noon, Eastern time, every day
the New York Stock Exchange is open for trading. All the Portfolio's net income
so determined is allocated pro rata among the investors in the Portfolio at the
time of such determination. On days when the financial markets in which the
Portfolio invests close early, net income will be calculated as of the close of
those markets. The Portfolio's securities are valued at amortized cost, which
is approximately equal to market value.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, assuming that the investor invested all of its investable assets in
the Portfolio.
THE PURCHASE AND REDEMPTION OF BENEFICIAL INTERESTS IN THE PORTFOLIO
Beneficial interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933. Only investment companies,
insurance company separate accounts, common or commingled trust funds or
similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act may invest in the Portfolio. This
Registration Statement is not an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received by the Portfolio. The net asset value of the Portfolio is determined
once during each Business Day as of 12:00 noon, Eastern time. Securities are
valued at amortized cost, which the Trustees of the Portfolio have determined
in good faith constitutes fair value for the purposes of complying with the
Investment Company Act of 1940. This valuation method will continue to be used
until such time as the Trustees of the Portfolio determine that it does not
constitute fair value for such purposes.
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There is no minimum initial or subsequent investment in the Portfolio. However,
since the Portfolio intends to be as fully invested at all times as is
reasonably practicable in order to enhance the yield on its assets, investments
must be made in federal funds (i.e., monies credited to the account of the
Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any time or
to reject any investment order.
An investor in the Portfolio may withdraw all or any portion of its investment
at any time at the net asset value next determined after a withdrawal request
in proper form is furnished by the investor to the Portfolio. The proceeds of a
withdrawal will be paid by the Portfolio in federal funds normally on the
business day (a day the New York Stock Exchange is open for trading) the
withdrawal is effected, but in any event within seven days. Investments in the
Portfolio may not be transferred.
Subject to compliance with applicable regulations, the Portfolio may pay the
redemption price of beneficial interests in the Portfolio, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the beneficial
interests being redeemed. If a holder of beneficial interests received a
distribution in kind, such holder could incur brokerage or other charges in
converting the securities to cash.
The right of any investor to receive payment with respect to any withdrawal may
be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
TAX MATTERS
The Portfolio expects to be treated as a partnership for federal income tax
purposes. As a result, the Portfolio does not expect to pay any federal income
or excise taxes, and, generally, investors in the Portfolio should not have to
pay federal taxes when they invest in or receive distributions or make
withdrawals from the Portfolio. However, each investor, in determining its own
federal income and excise tax liabilities, if any, will have to include the
investor's share from time to time of the Portfolio's ordinary income,
expenses, capital gains or losses, credits, tax-exempt income, and other items,
whether or not distributed.
The Portfolio also expects that investors which seek to qualify as regulated
investment companies under the Internal Revenue Code will be able to look to
their proportionate share of the assets and gross income of the Portfolio for
purposes of determining their compliance with the requirements applicable to
such companies.
The foregoing tax discussion is only for an investor's general information, and
does not take account of the special rules applicable to certain investors
(such as tax-exempt investors) or a number of special circumstances. Each
investor should consult its own tax advisers regarding the tax consequences in
its circumstances of an investment in the Portfolio, as well as any state,
local or foreign tax consequences to them of investing in the Portfolio.
Item 8. Distribution Arrangements.
The exclusive placement agent for the Portfolio is CFBDS, Inc. CFBDS receives
no compensation for serving as the Portfolio's exclusive placement agent.
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`
PART B
Item 10. Cover Page and Table of Contents.
This Part B sets forth information with respect to Tax Free Reserves
Portfolio (the "Portfolio"), an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The date of this
Part B and Part A to the Registration Statement for the Portfolio is January 4,
1999.
TABLE OF CONTENTS Page
Portfolio History........................................................B-2
Description of the Portfolio and Its Investments and Risks...............B-2
Management of the Portfolio..............................................B-10
Control Persons and Principal Holders
of Securities..........................................................B-12
Investment Advisory and Other Services...................................B-12
Brokerage Allocation and Other Practices.................................B-15
Capital Stock and Other Securities.......................................B-15
Purchase, Redemption and Pricing of
Securities.............................................................B-16
Taxation of the Portfolio................................................B-17
Underwriters.............................................................B-18
Calculations of Performance Data.........................................B-18
Financial Statements.....................................................B-19
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Item 11. Portfolio History.
The Portfolio was organized as a trust under the laws of the State of New
York on March 1, 1990.
Item 12. Description of the Portfolio and Its Investments and Risks.
The investment objectives of the Portfolio are to provide its investors
with high levels of current income which is exempt from federal income taxes,
preservation of capital and liquidity. There can, of course, be no assurance
that the Portfolio will achieve its investment objectives. The investment
objectives of the Portfolio may be changed without approval of the investors in
the Portfolio. The Portfolio would, however, give written notice to its
investors at least 30 days prior to implementing any change in its investment
objectives.
The Portfolio seeks its investment objectives by investing primarily in
short-term, high quality fixed rate and variable rate obligations issued by or
on behalf of states and municipal governments, and their authorities, agencies,
instrumentalities and political subdivisions and other qualifying issuers, the
interest on which is exempt from federal income taxes, including participation
interests in such obligations issued by banks, insurance companies or other
financial institutions. (These securities, whether or not the interest thereon
is subject to the federal alternative minimum tax, are referred to herein as
"Municipal Obligations.") In determining the tax status of interest on
Municipal Obligations, Citibank, N.A., the Portfolio's investment adviser
("Citibank" or the "Adviser"), relies on opinions of bond counsel who may be
counsel to the issuer. Although the Portfolio will attempt to invest 100% of
its assets in Municipal Obligations, the Portfolio reserves the right to invest
up to 20% of its total assets in securities the interest income on which is
subject to federal, state and local income tax or the federal alternative
minimum tax. The Portfolio invests more than 25% of its assets in participation
certificates issued by banks in industrial development bonds and other
Municipal Obligations. In view of this "concentration" in bank participation
certificates, an investment in the Portfolio should be made with an
understanding of the characteristics of the banking industry and the risks
which such an investment may entail. (See "Variable Rate Instruments and
Participation Interests" below.) The Portfolio may hold uninvested cash
reserves pending investment. The Portfolio's investments may include
"when-issued" or "forward delivery" Municipal Obligations, stand-by commitments
and taxable repurchase agreements.
The Portfolio may invest 25% or more of its assets in securities that are
related in such a way that an economic, business or political development or
change affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from
revenues of similar type projects, or securities the issuers of which are
located in the same state.
All investments by the Portfolio mature or are deemed to mature within 397
days from the date of acquisition and the average maturity of the Portfolio's
securities (on a dollar-weighted basis) is 90 days or less. The maturities of
variable rate instruments held by the Portfolio are deemed to be the longer of
the notice period, or the period remaining until the next interest rate
adjustment, although the stated maturities may be in excess of 397 days. (See
"Variable Rate Instruments and Participation Interests" below.) All investments
by the Portfolio are "eligible securities," that is, rated in one of the two
highest rating categories for short-term obligations by at least two NRSRO's
assigning a rating to the security or issuer or, if only one NRSRO assigns a
rating, that NRSRO, or, in the case of an investment which is not rated, of
comparable quality as determined by or on behalf of the Portfolio's Board of
Trustees on the basis of its credit evaluation of the obligor or of the bank
issuing a participation interest, letter of credit or guarantee, or insurance
issued in support of the Municipal Obligations or participation interests. (See
"Variable Rate Instruments and Participation Interests" below.) Such
instruments may produce a lower yield than would be available from less highly
rated instruments. The Portfolio's Board of Trustees has determined that
Municipal Obligations which are backed by the full faith and credit of the U.S.
government are considered to have a rating equivalent to Moody's Investors
Service, Inc. ("Moody's") Aaa.
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The Portfolio's fundamental policy to invest at least 80% of its assets, under
normal circumstances, in certain Municipal Obligations is described below in
"Municipal Obligations."
MUNICIPAL OBLIGATIONS
As a fundamental policy, the Portfolio invests at least 80% of its assets,
under normal circumstances, in:
(1) Municipal bonds with remaining maturities of one year or less that are
rated within the Aaa or Aa categories at the date of purchase by Moody's or
within the AAA or AA categories by Standard & Poor's Ratings Group ("Standard &
Poor's") or Fitch IBCA, Inc. ("Fitch") or, if not rated by these rating
agencies, are of comparable quality as determined by the Adviser on the basis
of the credit evaluation of the obligor on the bonds or of the bank issuing a
participation interest or guarantee or of any insurance issued in support of
the bonds or the participation interests.
(2) Municipal notes with remaining maturities of one year or less that at
the date of purchase are rated MIG 1/VMIG 1 or MIG 2/VMIG 2 by Moody's, SP-1+,
SP-1 or SP-2 by Standard & Poor's or F-1 or F-2 by Fitch or, if not rated by
these rating agencies, are of comparable quality as determined by the Adviser.
The principal kinds of municipal notes are tax and revenue anticipation notes,
tax anticipation notes, bond anticipation notes and revenue anticipation notes.
Notes sold in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuing municipality or
agency.
(3) Municipal commercial paper that is rated Prime-1 or Prime-2 by
Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1 or F-2 by Fitch or, if
not rated by these rating agencies, is of comparable quality as determined by
the Adviser. Issues of municipal commercial paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are often
issued to meet seasonal working capital needs of municipalities or to provide
interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases municipal
commercial paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions which may be called upon in the event of default by the
issuer of the commercial paper.
Subsequent to its purchase by the Portfolio, a rated Municipal Obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Portfolio. Neither event requires sale of such Municipal
Obligation by the Portfolio (other than variable rate instruments which must be
sold if they are not "high quality"), but the Adviser considers such event in
determining whether the Portfolio should continue to hold the Municipal
Obligation. To the extent that the ratings given to the Municipal Obligations
or other securities held by the Portfolio are altered due to changes in any of
the Moody's, Standard & Poor's or Fitch ratings systems, the Adviser adopts
such changed ratings as standards for its future investments in accordance with
the investment policies contained above and in the Part A to this Registration
Statement. Certain Municipal Obligations issued by instrumentalities of the
U.S. government are not backed by the full faith and credit of the U.S.
Treasury but only by the creditworthiness of the instrumentality. The
Portfolio's Board of Trustees has determined that any Municipal Obligation that
depends directly, or indirectly through a government insurance program or other
guarantee, on the full faith and credit of the U.S. government is considered to
have a rating in the highest category. Where necessary to ensure that the
Municipal Obligations are "eligible securities" (i.e., within the two highest
ratings assigned by Moody's, Standard & Poor's or Fitch), or where the
obligations are not freely transferable, the Portfolio will require that the
obligation to pay the principal and accrued interest be backed by an
unconditional irrevocable bank letter of credit, a guarantee, insurance policy
or other comparable undertaking of an approved financial institution.
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MUNICIPAL BONDS. Municipal bonds are debt obligations of states, cities,
municipalities and municipal agencies and authorities which generally have a
maturity at the time of issuance of one year or more and which are issued to
raise funds for various public purposes, such as construction of a wide range
of public facilities, refunding outstanding obligations or obtaining funds for
institutions and facilities. The two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds. General obligation bonds
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. The principal of and interest on
revenue bonds are payable from the income of specific projects or authorities
and generally are not supported by the issuer's general power to levy taxes. In
some cases, revenues derived from specific taxes are pledged to support
payments on a revenue bond.
In addition, certain kinds of private activity bonds ("IDBs") are issued
by or on behalf of public authorities to provide funding for various privately
operated industrial facilities, such as warehouse, office, plant and store
facilities and environmental and pollution control facilities. IDBs are, in
most cases, revenue bonds. The payment of the principal and interest on IDBs
usually depends solely on the ability of the user of the facilities financed by
the bonds or other guarantor to meet its financial obligations and, in certain
instances, the pledge of real and personal property as security for payment.
Many IDBs may not be readily marketable; however, the IDBs or the participation
certificates in IDBs purchased by the Portfolio will have liquidity because
they generally will be supported by demand features to "high quality" banks,
insurance companies or other financial institutions.
Municipal bonds may be issued as "zero coupon" obligations. Zero-coupon
bonds are issued at a significant discount from their principal amount in lieu
of paying interest periodically. Because zero-coupon bonds do not pay current
interest in cash, their value is subject to greater fluctuation in response to
changes in market interest rates than bonds that pay interest currently.
Zero-coupon bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. The Portfolio is required
to accrue interest income on such investments and to distribute such amounts at
least annually to shareholders even though zero-coupon bonds do not pay current
interest in cash. Thus, it may be necessary at times for the Portfolio to
liquidate investments in order to satisfy its dividend requirements.
MUNICIPAL NOTES. There are four major varieties of state and municipal
notes: Tax and Revenue Anticipation Notes ("TRANs"); Tax Anticipation Notes
("TANs"); Revenue Anticipation Notes ("RANs"); and Bond Anticipation Notes
("BANs"). TRANs, TANs and RANs are issued by states, municipalities and other
tax-exempt issuers to finance short-term cash needs or, occasionally, to
finance construction. Many TRANs, TANs and RANs are general obligations of the
issuing entity payable from taxes or designated revenues, respectively,
expected to be received within the related fiscal period. BANSs are issued with
the expectation that their principal and interest will be paid out of proceeds
from renewal notes or bonds to be issued prior to the maturity of the BANs.
BANs are issued most frequently by both general obligation and revenue bond
issuers usually to finance such items as land acquisition, facility acquisition
and/or construction and capital improvement projects.
MUNICIPAL LEASE OBLIGATIONS. Participations in municipal leases are
undivided interests in a portion of a lease or installment purchase issued by a
state or local government to acquire equipment or facilities. Municipal leases
frequently have special risks not normally associated with general obligation
bonds or revenue bonds. Many leases include "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by
the appropriate legislative body on a yearly or other periodic basis. Although
the obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. Municipal lease obligations are deemed
to be illiquid unless otherwise determined by the Board of Trustees.
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VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS
The Portfolio may purchase variable rate instruments and participation
interests. Variable rate instruments that the Portfolio may purchase are
tax-exempt Municipal Obligations (including municipal notes and municipal
commercial paper) that provide for a periodic adjustment in the interest rate
paid on the instrument and permit the holder to receive payment upon a
specified number of days' notice of the unpaid principal balance plus accrued
interest either from the issuer or by drawing on a bank letter of credit, a
guarantee or an insurance policy issued with respect to such instrument or by
tendering or "putting" such instrument to a third party.
The variable rate instruments in which Portfolio's assets may be invested
are payable upon a specified period of notice which may range from one day up
to one year. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to one year and the
adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. The
Portfolio will decide which variable rate instruments it will purchase in
accordance with procedures prescribed by its Board of Trustees to minimize
credit risks. An unrated variable rate instrument may be determined to meet the
Portfolio's high quality criteria if it is backed by a letter of credit or
guarantee or a right to tender or put the instrument to a third party or is
insured by an insurer that meets the high quality criteria for the Portfolio
discussed above or on the basis of a credit evaluation of the underlying
obligor. If the credit of the obligor is of "high quality," no credit support
from a bank or other financial institution will be necessary. Each unrated
variable rate instrument will be evaluated on a quarterly basis to determine
that it continues to meet the Portfolio's high quality criteria. If an
instrument is ever deemed to be of less than high quality, the Portfolio either
will sell it in the market or exercise the liquidity feature described below.
Variable rate instruments in which the Portfolio may invest include
participation interests in variable rate, tax-exempt Municipal Obligations
owned by a bank, insurance company or other financial institution or affiliated
organizations. Although the rate of the underlying Municipal Obligations may be
fixed, the terms of the participation interest may result in the Portfolio
receiving a variable rate on its investment. A participation interest gives the
Portfolio an undivided interest in the Municipal Obligation in the proportion
that the Portfolio's participation bears to the total principal amount of the
Municipal Obligation and provides the liquidity feature. Each participation may
be backed by an irrevocable letter of credit or guarantee of, or a right to put
to, a bank (which may be the bank issuing the participation interest, a bank
issuing a confirming letter of credit to that of the issuing bank, or a bank
serving as agent of the issuing bank with respect to the possible repurchase of
the participation interest) or insurance policy of an insurance company that
has been determined by or on behalf of the Board of Trustees of the Portfolio
to meet the prescribed quality standards of the Portfolio. The Portfolio has
the right to sell the participation interest back to the institution or draw on
the letter of credit or insurance after a specified period of notice, for all
or any part of the full principal amount of the Portfolio's participation in
the security, plus accrued interest. The Portfolio intends to exercise the
liquidity feature only (1) upon a default under the terms of the bond
documents, (2) as needed to provide liquidity to the Portfolio in order to
facilitate withdrawals from the Portfolio, or (3) to maintain a high quality
investment portfolio. In some cases, this liquidity feature may not be
exercisable in the event of a default on the underlying Municipal Obligations;
in these cases, the underlying Municipal Obligations must meet the Portfolio's
high credit standards at the time of purchase of the participation interest.
Issuers of participation interests will retain a service and letter of credit
fee and a fee for providing the liquidity feature, in an amount equal to the
excess of the interest paid on the instruments over the negotiated yield at
which the participations were purchased on behalf of the Portfolio. The total
fees generally range from 5% to 15% of the applicable prime rate or other
interest rate index. With respect to insurance, the Portfolio will attempt to
have the issuer of the participation interest bear the cost of the insurance,
although the Portfolio retains the option to purchase insurance if necessary,
in which case the cost of insurance will be an expense of the Portfolio subject
to the expense limitation of 2 1/2% of the first $30 million of the Portfolio's
average net assets, 2% of the next $70 million and 1 1/2% of the Portfolio's
average net assets in excess of $100 million. The Adviser has been instructed
by the Portfolio's Board of Trustees to monitor continually the pricing,
quality and liquidity of the variable rate instruments held by the Portfolio,
<PAGE>
including the participation interests, on the basis of published financial
information and reports of the rating agencies and other bank analytical
services to which the Portfolio may subscribe. Although participation interests
may be sold, the Portfolio intends to hold them until maturity, except under
the circumstances stated above. Participation interests include municipal lease
obligations which are deemed to be illiquid unless otherwise determined by or
at the direction of the Board of Trustees. Purchase of a participation interest
may involve the risk that the Portfolio will not be deemed to be the owner of
the underlying Municipal Obligation for purposes of the ability of to claim tax
exemption of interest paid on that Municipal Obligation.
Periods of high inflation and periods of economic slowdown, together with
the fiscal measures adopted to attempt to deal with them, have brought wide
fluctuations in interest rates. When interest rates rise, the value of fixed
income securities generally falls; and vice versa. While this is true for
variable rate instruments generally, the variable rate nature of the underlying
instruments should minimize these changes in value. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation and the risk
of potential capital depreciation is less than would be the case with a
portfolio of fixed income securities. Because the adjustment of interest rates
on the variable rate instruments is made in relation to movements of various
interest rate adjustment indices, the variable rate instruments are not
comparable to long-term fixed rate securities. Accordingly, interest rates on
the variable rate instruments may be higher or lower than current market rates
for fixed rate obligations of comparable quality with similar maturities.
Because of the variable rate nature of the instruments, when prevailing
interest rates decline the Portfolio's yield will decline and its shareholders
will forgo the opportunity for capital appreciation. On the other hand, during
periods when prevailing interest rates increase, the Portfolio's yield will
increase and its shareholders will have reduced risk of capital depreciation.
For purposes of determining whether a variable rate instrument held by the
Portfolio matures within 397 days from the date of its acquisition, the
maturity of the instrument will be deemed to be the longer of (1) the period
required before the Portfolio is entitled to receive payment of the principal
amount of the instrument after notice or (2) the period remaining until the
instrument's next interest rate adjustment, except that an instrument issued or
guaranteed by the U.S. government or any agency thereof shall be deemed to have
a maturity equal to the period remaining until the next adjustment of the
interest rate. The maturity of a variable rate instrument will be determined in
the same manner for purposes of computing the Portfolio's dollar-weighted
average portfolio maturity.
In view of the "concentration" of the Portfolio in bank participation
interests in Municipal Obligations secured by bank letters of credit or
guarantees, an investment in the Portfolio should be made with an understanding
of the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulation
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operation of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit.
"WHEN-ISSUED" SECURITIES
The Portfolio may purchase securities on a "when-issued" or "forward
delivery" basis. New issues of certain Municipal Obligations frequently are
offered on a "when-issued" or "forward delivery" basis. The payment obligation
and the interest rate that will be received on the Municipal Obligations are
each fixed at the time the buyer enters into the commitment although
settlement, i.e., delivery of and payment for the Municipal Obligations, takes
place beyond customary settlement time (but normally within 45 days after the
date of the Portfolio's commitment to purchase). Although the Portfolio will
only make commitments to purchase "when-issued" or "forward delivery" Municipal
Obligations with the intention of actually acquiring them, the Portfolio may
<PAGE>
sell these securities before the settlement date if deemed advisable by the
Adviser.
Municipal Obligations purchased on a "when-issued" or "forward delivery"
basis and the securities held in the Portfolio's investment portfolio are
subject to changes in value based upon the public's perception of the
credit-worthiness of the issuer and changes, real or anticipated, in the level
of interest rates. The value of these Municipal Obligations and securities
generally change in the same way, that is, both experience appreciation when
interest rates decline and depreciation when interest rates rise. Purchasing
Municipal Obligations on a "when-issued" or "forward delivery" basis can
involve a risk that the yields available in the market on the settlement date
may actually be higher or lower than those obtained in the transaction itself.
A separate account of the Portfolio consisting of cash or liquid debt
securities equal to the amount of the "when-issued" or "forward delivery"
commitments will be established at the Portfolio's custodian bank. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market value. If the market value of
such securities declines, additional cash or highly liquid securities will be
placed in the account daily so that the value of the account will equal the
amount of the Portfolio's commitments. On the settlement date of the
"when-issued" or "forward delivery" securities, the Portfolio's obligations
will be met from then-available cash flow, sale of securities held in the
separate account, sale of other securities or, although not normally expected,
from sale of the "when-issued" or "forward delivery" securities themselves
(which may have a value greater or lesser than the Portfolio's payment
obligations). Sale of securities to meet such obligations may result in the
realization of capital gains or losses, which are not exempt from federal
income tax. An increase in the percentage of the Portfolio's assets committed
to the purchase of securities on a "when-issued" basis may increase the
volatility of its net asset value.
STAND-BY COMMITMENTS
When the Portfolio purchases Municipal Obligations it may also acquire
stand-by commitments from banks with respect to such Municipal Obligations. The
Portfolio also may acquire stand-by commitments from broker-dealers. Under the
stand-by commitment, a bank or broker-dealer agrees to purchase at the
Portfolio's option a specified Municipal Obligation at a specified price. A
stand-by commitment is the equivalent of a "put" option acquired by the
Portfolio with respect to a particular Municipal Obligation held in the
Portfolio's investment portfolio.
The amount payable to the Portfolio upon the exercise of a stand-by
commitment normally would be (1) the acquisition cost of the Municipal
Obligation (excluding any accrued interest paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue
discount during the period the Portfolio owned the security, plus (2) all
interest accrued on the security since the last interest payment date during
the period the security was owned by the Portfolio. Absent unusual
circumstances relating to a change in market value, the Portfolio would value
the underlying Municipal Obligation at amortized cost. Accordingly, the amount
payable by a bank or dealer during the time a stand-by commitment is
exercisable would be substantially the same as the market value of the
underlying Municipal Obligation. The Portfolio values stand-by commitments at
zero for purposes of computing the value of its net assets.
The stand-by commitments that the Portfolio may enter into are subject to
certain risks, which include the ability of the issuer of the commitment to pay
for the securities at the time the commitment is exercised and the fact that
the commitment is not marketable by the Portfolio and the maturity of the
underlying security will generally be different from that of the commitment.
TAXABLE SECURITIES
Although the Portfolio attempts to invest 100% of its net assets in
tax-exempt Municipal Obligations, the Portfolio may invest up to 20% of the
value of its net assets in securities of the kind described below, the interest
income on which is subject to federal income tax. Circumstances in which the
Portfolio may invest in taxable securities include the following: (a) pending
investment in the type of securities described above; (b) to maintain liquidity
<PAGE>
for the purpose of meeting anticipated withdrawals; and (c) when, in the
opinion of the Portfolio's investment adviser, it is advisable to do so because
of adverse market conditions affecting the market for Municipal Obligations.
The kinds of taxable securities in which the Portfolio's assets may be invested
are limited to the following short-term, fixed-income securities (maturing in
397 days or less from the time of purchase): (1) obligations of the U.S.
government or its agencies, instrumentalities or authorities; (2) commercial
paper rated Prime-1 or Prime-2 by Moody's, A-1+, A-1 or A-2 by Standard &
Poor's or F-1+, F-1 or F-2 by Fitch; (3) certificates of deposit of U.S. banks
with assets of $1 billion or more; and (4) repurchase agreements with respect
to any Municipal Obligations or other securities which the Portfolio is
permitted to own. The Portfolio's assets may also be invested in Municipal
Obligations which are subject to an alternative minimum tax.
REPURCHASE AGREEMENTS
The Portfolio may invest its assets in instruments subject to repurchase
agreements only with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York) in U.S.
government securities. Under the terms of a typical repurchase agreement, the
Portfolio would acquire an underlying debt instrument for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase and the Portfolio to resell the instrument at a fixed price and
time, thereby determining the yield during the Portfolio's holding period. This
results in a fixed rate of return insulated from market fluctuations during
such period. A repurchase agreement is subject to the risk that the seller may
fail to repurchase the security. Repurchase agreements may be deemed to be
loans under the 1940 Act. All repurchase agreements entered into by the
Portfolio shall be fully collateralized at all times during the period of the
agreement in that the value of the underlying security shall be at least equal
to the amount of the loan, including the accrued interest thereon, and the
Portfolio or its custodian or sub-custodian shall have possession of the
collateral, which the Portfolio's Board of Trustees believes will give it a
valid, perfected security interest in the collateral. Whether a repurchase
agreement is the purchase and sale of a security or a collateralized loan has
not been definitively established. This might become an issue in the event of
the bankruptcy of the other party to the transaction. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Portfolio but only
constitute collateral for the seller's obligation to pay the repurchase price.
Therefore, the Portfolio may suffer time delays and incur costs in connection
with the disposition of the collateral. The Portfolio's Board of Trustees
believes that the collateral underlying repurchase agreements may be more
susceptible to claims of the seller's creditors than would be the case with
securities owned by the Portfolio. Repurchase agreements will give rise to
income which will not qualify as tax-exempt income when distributed by the
Portfolio. The Portfolio will not invest in a repurchase agreement maturing in
more than seven days if any such investment together with illiquid securities
held by the Portfolio exceed 10% of the Portfolio's total net assets.
Repurchase agreements are also subject to the same risks described herein with
respect to stand-by commitments.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Portfolio may lend its securities to broker-dealers and
other institutional borrowers. Such loans will usually be made only to member
banks of the U.S. Federal Reserve System and to member firms of the New York
Stock Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate a
loan at any time on customary industry settlement notice (which will not
usually exceed three business days). During the existence of a loan, the
Portfolio would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and with respect to cash collateral
would also receive compensation based on investment of the collateral (subject
to a rebate payable to the borrower). Where the borrower provides the Portfolio
with collateral consisting of U.S. Treasury obligations, the borrower is also
obligated to pay the Portfolio a fee for use of the borrowed securities. The
Portfolio would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but would call the loan in
<PAGE>
anticipation of an important vote to be taken among holders of the securities
or of the giving or withholding of their consent on a material matter affecting
the investment. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially. However, the loans would be made only to entities deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. In addition, the Portfolio could suffer loss if the
borrower terminates the loan and the Portfolio is forced to liquidate
investments in order to return the cash collateral to the buyer. If the Adviser
determines to make loans, it is not intended that the value of the securities
loaned by the Portfolio would exceed 33 1/3% of the value of its net assets.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
The Portfolio may invest up to 10% of its net assets in securities for
which there is no readily available market. These illiquid securities may
include privately placed restricted securities for which no institutional
market exists. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Portfolio to sell them promptly at an
acceptable price.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following policies which may not be changed
without approval by holders of a "majority of the outstanding voting
securities" of the Portfolio, which as used in this Registration Statement
means the vote of the lesser of (i) 67% or more of the outstanding voting
securities of the Portfolio present at a meeting if the holders of more than
50% of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Portfolio. The term "voting securities" as used in this
paragraph has the same meaning as in the 1940 Act.
The Portfolio may not:
(1) borrow money, except that as a temporary measure for extraordinary or
emergency purposes the Portfolio may borrow from banks in an amount not to
exceed 1/3 of the value of the net assets of the Portfolio, including the
amount borrowed (moreover, the Portfolio may not purchase any securities at any
time at which borrowings exceed 5% of its total assets (taken at market
value))(it is intended that the Portfolio would borrow money only from banks
and only to accommodate requests for withdrawal of all or a portion of a
beneficial interest in the Portfolio while effecting an orderly liquidation of
securities);
(2) purchase any security or evidence of interest therein on margin,
except that the Portfolio may obtain such short term credit as may be necessary
for the clearance of purchases and sales of securities;
(3) underwrite securities issued by other persons, except insofar as the
Portfolio may technically be deemed an underwriter under the Securities Act of
1933, as amended (the "1933 Act"), in selling a security;
(4) make loans to other persons except (a) through the lending of
securities held by the Portfolio, but not in excess of 33 1/3% of the
Portfolio's net assets, (b) through the use of fixed time deposits or
repurchase agreements or the purchase of short term obligations, or (c) by
purchasing all or a portion of an issue of debt securities of types commonly
distributed privately to financial institutions; for purposes of this paragraph
(4) the purchase of short term commercial paper or a portion of an issue of
debt securities which are part of an issue to the public shall not be
considered the making of a loan;
<PAGE>
(5) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Portfolio reserves the freedom of action
to hold and to sell real estate acquired as the result of ownership of
securities by the Portfolio);
(6) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of its investment objective, up to 25%
of the assets of the Portfolio (taken at market value at the time of each
investment) may be invested in any one industry, except that the Portfolio will
invest at least 25% of its assets and may invest up to 100% of its assets in
bank obligations; or
(7) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating the investment restriction in paragraph (1) above.
Designation of Issuer of Securities
For purposes of the investment restrictions described above, the issuer of
a tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of principal of and interest on the security. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
issuing entity and a security is backed only by the assets and revenues of the
entity, the entity would be deemed to be the sole issuer of the security.
Similarly, in the case of an industrial development bond, if that bond is
backed only by the assets and revenues of the non-governmental user, then such
non-governmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity, such as an insurance
company or other corporate obligor, guarantees a security or a bank issues a
letter of credit, such a guarantee or letter of credit may, in accordance with
applicable Securities and Exchange Commission rules, be considered a separate
security and could be treated as an issue of such government, other entity or
bank.
Percentage and Rating Restrictions
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above is adhered to at the time an investment
is made or assets are so utilized, a later change in percentage resulting from
changes in the value of the portfolio securities or a later change in the
rating of a portfolio security will not be considered a violation of such
policy.
Item 13. Management of the Portfolio.
The Trustees and officers of the Portfolio and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate that those Trustees and officers are
"interested persons" (as defined in the 1940 Act) of the Portfolio. Unless
otherwise indicated below, the address of each Trustee and officer is 21 Milk
Street, Boston, Massachusetts 02109. The address of the Portfolio is
Elizabethan Square, George Town, Grand Cayman, Cayman Islands, British West
Indies.
TRUSTEES
ELLIOTT J. BERV; 55 -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
June, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.
<PAGE>
PHILIP W. COOLIDGE; 47* -- President of the Portfolio; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc.
RILEY C. GILLEY; 72 -- Vice President and General Counsel, Corporate Property
Investors (November, 1988 to December, 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (Retired, December, 1987). His address is 4041 Gulf Shore Boulevard
North, Naples, Florida.
WALTER E. ROBB, III; 72 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors ) (since 1978);
President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS Family of
Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
OFFICERS
PHILIP W. COOLIDGE; 47* -- President of the Portfolio; Chief Executive Officer
and President, Signature Financial Group, Inc., and CFBDS, Inc.
CHRISTINE A. DRAPEAU; 28* -- Assistant Secretary and Assistant Treasurer of
Portfolio; Vice President, Signature Financial Group, Inc. (since January,
1996); Paralegal and Compliance Officer, various financial companies (July,
1992 to January, 1996).
TAMIE EBANKS-CUNNINGHAM; 26* -- Assistant Secretary of the Portfolio; Office
Manager, Signature Financial Group (Cayman) Ltd. (Since April 1995);
Administrator, Cayman Islands Primary School (prior to April 1995). Her address
is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.
JOHN R. ELDER; 50* -- Treasurer of the Portfolio; Vice President, Signature
Financial Group, Inc. (since April, 1995); Assistant Treasurer, CFBDS, Inc.
(since April 1995); Treasurer, Phoenix Family of Mutual Funds (Phoenix Home
Life Mutual Insurance Company) (1983 to March, 1995).
LINDA T. GIBSON; 33* -- Secretary of the Portfolio; Senior Vice President,
Signature Financial Group, Inc.; Secretary, CFBDS, Inc.
JAMES E. HOOLAHAN; 51* -- Vice President, Assistant Secretary and Assistant
Treasurer of the Portfolio; Senior Vice President, Signature Financial Group,
Inc.
SUSAN JAKUBOSKI; 34* -- Vice President, Assistant Treasurer and Assistant
Secretary of the Portfolio; Vice President, Signature Financial Group (Cayman)
Ltd. (since August, 1994); Fund Compliance Administrator, Concord Financial
Group (November, 1990 to August, 1994). Her address is Suite 193, 12 Church
St., Hamilton HM11, Bermuda.
MOLLY S. MUGLER; 47* -- Assistant Secretary and Assistant Treasurer of the
Portfolio; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS, Inc.
CLAIR TOMALIN; 30* -- Assistant Secretary of the Portfolio; Office Manager,
Signature Financial Group (Europe) Limited. Her address is 117 Charterhouse
Street, London ECIM 6AA.
SHARON M. WHITSON; 50* -- Assistant Secretary and Assistant Treasurer of the
Portfolio; Assistant Vice President, Signature Financial Group, Inc.
JULIE J. WYETZNER; 39* -- Vice President, Assistant Secretary and Assistant
Treasurer of the Portfolio; Vice President, Signature Financial Group, Inc.
<PAGE>
The Trustees and officers of the Portfolio also hold comparable positions
with certain other funds for which CFBDS, Inc. ("CFBDS" or the
"Administrator"), the Portfolio's administrator and a wholly-owned subsidiary
of Signature Financial Group, Inc., or an affiliate serves as the distributor
or administrator. Mr. Coolidge is also a Trustee of CitiFunds Tax Free Reserves
and CitiFunds Institutional Trust, open-end investment companies, series of
each of which are investors in the Portfolio, and each officer of the Portfolio
holds the same position with those investment companies.
The Trustees of the Portfolio (with the exception of Mr. Coolidge, who
received no remuneration from the Portfolio) received the following
remuneration from the Portfolio during its fiscal year ended August 31, 1998:
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM
AGGREGATE ACCRUED AS ESTIMATED REGISTRANT AND
COMPENSATION PART OF ANNUAL BENEFITS PORTFOLIO
NAME OF PERSON, FROM PORTFOLIO UPON COMPLEX PAID
POSITION REGISTRANT EXPENSES RETIREMENT TO TRUSTEES(1)
<S> <C> <C> <C> <C>
Elliott J. Berv, Trustee $4,164 None None $53,750
Mark T. Finn, Trustee(2) $3,953 None None $52,000
Riley C. Gilley, Trustee (3) $0 None None $0
Walter E. Robb, III, $4,014 None None $50,000
Trustee
</TABLE>
___
(1) Messrs. Coolidge, Berv, Finn, Gilley and Robb are trustees of 49, 27, 26,
33 and 30, funds, respectively, in the family of open-end registered
investment companies advised or managed by Citibank.
(2) Mr. Finn resigned as a trustee of the Portfolio as of September 1, 1998.
(3) Mr. Gilley became a trustee of the Portfolio as of September 1, 1998.
The Portfolio's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Portfolio, unless, as to liability to the Portfolio or its investors, it is
finally adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Portfolio. In the case of settlement, such
indemnification will not be provided unless it has been determined by a court
or other body approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
Item 14. Control Persons and Principal Holders of Securities.
CitiFunds Tax Free Reserves and CitiFunds Institutional Tax Free Reserves,
a series of CitiFunds Institutional Trust (the "Funds") own 66.5% and 33.5%,
respectively, of the beneficial interests in the Portfolio.
The Funds are registered investment companies which have informed the
Portfolio that whenever requested to vote on matters pertaining to the
Portfolio (other than a vote to continue the Portfolio following the withdrawal
of an investor) each will hold a meeting of shareholders and will cast its vote
as instructed by its shareholders, or otherwise act in accordance with
applicable law. Notwithstanding the foregoing, at any meeting of shareholders
of a Fund, a shareholder servicing agent may vote any shares of which it is the
<PAGE>
holder of record and for which it does not receive voting instructions
proportionately in accordance with instructions it received for all other
shares of which that shareholder servicing agent is the holder of record.
Item 15. Investment Advisory and Other Services.
Citibank manages the assets of the Portfolio pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). Subject to such policies as the
Portfolio's Board of Trustees may determine, the Adviser makes investment
decisions for the Portfolio. The Adviser furnishes at its own expense all
services, facilities and personnel necessary in connection with managing the
Portfolio's investments and effecting securities transactions for the
Portfolio. The Advisory Agreement continues in effect if such continuance is
specifically approved at least annually by the Portfolio's Board of Trustees or
by a vote of a majority of the voting securities of the Portfolio and, in
either case, by a majority of the Portfolio's Trustees who are not parties to
the Advisory Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable by the Portfolio without penalty
on not more than 60 days' nor less than 30 days' written notice when authorized
either by a vote of a majority of the voting securities of the Portfolio or by
a vote of a majority of its Board of Trustees, or by the Adviser on not more
than 60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. The Advisory Agreement provides that
neither the Adviser nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution of security transactions for the Portfolio, except
for willful misfeasance, bad faith or gross negligence or reckless disregard of
its or their obligations and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Adviser receives
investment advisory fees, which are accrued daily and paid monthly, of 0.20% of
the Portfolio's average daily net assets on an annualized basis for the
Portfolio's then-current fiscal year. The Adviser has voluntarily agreed to
waive a portion of its investment advisory fee from the Portfolio.
For the fiscal years ended August 31, 1996, 1997 and 1998 the fees paid to
Citibank under the Advisory Agreement with the Portfolio, after waivers, were
$737,021, $506,142 and $659,288, respectively.
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Portfolio. Citibank believes that its services under the Advisory
Agreement and the activities performed by it as sub-administrator of the
Portfolio are not underwriting and are consistent with the Glass-Steagall Act
and other relevant federal and state laws. However, there is no controlling
precedent regarding the performance of the combination of investment advisory
and sub-administrative activities by banks. State laws on this issue may differ
from applicable federal law and banks and financial institutions may be
required to register as dealers pursuant to state securities laws. Changes in
either federal or state statutes or regulations, or in their interpretations,
could prevent Citibank or its affiliates from continuing to perform these
services for the Portfolio. If Citibank or its affiliates were to be prevented
from acting as the Adviser or sub-administrator, the Portfolio would seek
alternative means for obtaining these services. The Portfolio does not expect
that investors would suffer any adverse financial consequences as a result of
any such occurrence.
The Portfolio has adopted an Administrative Services Plan (the
"Administrative Plan") which provides that the Portfolio may obtain the
services of an administrator, a transfer agent and a custodian, and may enter
into agreements providing for the payment of fees for such services. Under the
Administrative Plan, the administrative services fee payable to the
Administrator from the Portfolio may not exceed 0.05% of the Portfolio's
average daily net assets on an annualized basis for its thencurrent fiscal
year. The Administrative Plan continues in effect if such continuance is
<PAGE>
specifically approved at least annually by a vote of both a majority of the
Portfolio's Trustees and a majority of the Portfolio's Trustees who are not
"interested persons" of the Portfolio and who have no direct or indirect
financial interest in the operation of the Administrative Plan or in any
agreement related to such Plan ("Qualified Trustees"). The Administrative Plan
requires that the Portfolio provide to the Board of Trustees and the Board of
Trustees review, at least quarterly, a written report of the amounts expended
(and the purposes therefor) under the Administrative Plan. The Administrative
Plan may be terminated at any time by a vote of a majority of the Portfolio's
Qualified Trustees or by a vote of a majority of the outstanding voting
securities of the Portfolio. The Administrative Plan may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of a majority of the outstanding voting securities of the Portfolio
and may not be materially amended in any case without a vote of the majority of
both the Trustees and the Qualified Trustees.
Pursuant to an Administrative Services Agreement (the "Administrative
Services Agreement"), CFBDS provides the Portfolio with general office
facilities and supervises the overall administration of the Portfolio,
including, among other responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings of, the independent
contractors and agents of the Portfolio; the preparation and filing of all
documents required for compliance by the Portfolio with applicable laws and
regulations; and arranging for the maintenance of books and records of the
Portfolio. CFBDS provides persons satisfactory to the Board of Trustees of the
Portfolio to serve as Trustees and officers of the Portfolio. Such Trustees and
officers may be directors, officers or employees of CFBDS or its affiliates.
The Administrative Services Agreement continues in effect if such
continuance is specifically approved at least annually by the Portfolio's Board
of Trustees or by a vote of a majority of the outstanding voting securities of
the Portfolio and, in either case, by a majority of the Trustees of the
Portfolio who are not parties to the Administrative Services Agreement or
interested persons of any such party. The Administrative Services Agreement
terminates automatically if it is assigned and may be terminated without
penalty by a vote of a majority of the outstanding voting securities in the
Portfolio or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Services Agreement also provides that
neither CFBDS, as the Administrator, nor its personnel shall be liable for any
error of judgment or mistake of law or for any act or omission in the
administration or management of the Portfolio, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
Administrative Services Agreement.
For these services under the Administrative Services Agreement, CFBDS
receives a fee accrued daily and paid monthly of 0.05% of the assets of the
Portfolio. For the fiscal years ended August 31, 1996 and 1997, the fees paid
to CFBDS under the Administrative Services Agreement with the Portfolio, after
waivers, were $180,025 and $79,252, respectively. For the fiscal year ended
August 31, 1998, the fees payable to CFBDS under the Administrative Services
Agreement were voluntarily waived.
The Administrative Services Agreement provides that CFBDS may render
administrative services to others.
CFBDS is a whollyowned subsidiary of Signature Financial Group, Inc.
Pursuant to a subadministrative services agreement, Citibank performs such
subadministrative duties for the Portfolio as are from time to time agreed upon
by Citibank and CFBDS. Citibank's subadministrative duties may include
providing equipment and clerical personnel necessary for maintaining the
organization of the Portfolio, participation in the preparation of documents
required for compliance by the Portfolio with applicable laws and regulations,
preparation of certain documents in connection with meetings of Trustees and
investors in the Portfolio, and other functions which would otherwise be
performed by the Administrator as set forth above. For performing such
subadministrative services, Citibank receives such compensation as is from time
<PAGE>
to time agreed upon by CFBDS and Citibank, not to exceed the amount paid to the
Administrator for its services under the Administrative Services Agreement. All
such compensation is paid by CFBDS.
The Portfolio has entered into a Transfer Agency Agreement and a Custodian
Agreement with State Street Bank and Trust Company ("State Street") pursuant to
which State Street acts as transfer agent and custodian for the Portfolio. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110.
Deloitte & Touche LLP are the independent certified public accountants for
the Portfolio, providing audit services and assistance and consultation with
respect to the preparation of filings with the Securities and Exchange
Commission. The principal business address of Deloitte & Touche LLP is 125
Summer Street, Boston, Massachusetts 02110.
Item 16. Brokerage Allocation and Other Practices.
The Portfolio's purchases and sales of securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. There usually
are no brokerage commissions paid for such purchases. The Portfolio does not
anticipate paying brokerage commissions. Any transaction for which the
Portfolio pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked price.
Allocation of transactions, including their frequency, to various dealers
is determined by the Adviser in its best judgment and in a manner deemed to be
in the best interest of investors in the Portfolio rather than by any formula.
The primary consideration is prompt execution of orders in an effective manner
at the most favorable price.
Investment decisions for the Portfolio are made independently from those
for any other account or investment company that is or may in the future become
managed by the Adviser or its affiliates. If, however, the Portfolio and other
investment companies or accounts managed by the Adviser are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy may adversely affect the price paid or received by the Portfolio or
the size of the position obtainable for the Portfolio. In addition, when
purchases or sales of the same security for the Portfolio and for other
investment companies or accounts managed by the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
No transactions are executed with the Adviser or an affiliate of the
Adviser, in any case acting either as principal or as broker.
Item 17. Capital Stock and Other Securities.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate
pro rata in distributions of taxable income, loss, gain and credit of the
Portfolio. Upon liquidation or dissolution of the Portfolio, investors are
entitled to share pro rata in the Portfolio's net assets available for
distribution to its investors. Investments in the Portfolio have no preference,
pre-emptive, conversion or similar rights and are fully paid and non-
assessable, except as set forth below. Investments in the Portfolio may not
be transferred. Certificates representing an investor's beneficial interest in
the Portfolio are issued only upon the written request of an investor.
<PAGE>
Each investor is entitled to a vote in proportion to the value of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees of the Portfolio if
they choose to do so and in such event the other investors in the Portfolio
would not be able to elect any Trustee. The Portfolio is not required and has
no current intention to hold annual meetings of investors but the Portfolio
holds special meetings of investors when it is required to do so by law, or in
the judgment of the Portfolio's Trustees it is necessary or desirable to submit
matters for an investor vote. No material amendment may be made to the
Portfolio's Declaration of Trust without the affirmative vote of a majority of
the outstanding voting securities of the Portfolio.
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two-thirds of the
outstanding voting securities of the Portfolio. The Portfolio may also be
terminated (i) by the affirmative vote of two-thirds of the outstanding voting
securities of the Portfolio or (ii) by the Trustees of the Portfolio by written
notice to its investors.
The Portfolio is organized as a trust under the laws of the State of New
York. Investors in the Portfolio are personally liable for its obligations and
liabilities, subject, however, to indemnification by the Portfolio in the event
that there is imposed upon an investor a greater portion of the liabilities and
obligations of the Portfolio than its proportionate beneficial interest in the
Portfolio. The Declaration of Trust also provides that the Portfolio maintain
appropriate insurance (e.g., fidelity bonding and errors and omissions
insurance) for the protection of the Portfolio, its investors, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of an investor incurring financial loss on account of investor
liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations. It is not
expected that the liabilities of the Portfolio would ever exceed its assets.
The Portfolio's Declaration of Trust further provides that obligations of
the Portfolio are not binding upon the Trustees individually, but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each business day. At 12:00 noon, Eastern time, on each such
business day, the value of each investor's interest in the Portfolio is
determined by multiplying the net asset value of the Portfolio by the
percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio effective for that day. Any additions or
withdrawals, which are to be effected on that day, are then effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio is
then re-computed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Portfolio as of 12:00
noon, Eastern time, on such day plus or minus, as the case may be, the amount
of any additions to or withdrawals from the investor's investment in the
Portfolio effected on such day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of 12:00 noon, Eastern time, on
such day plus or minus, as the case may be, the amount of the net additions to
or withdrawals from the aggregate investments in the Portfolio by all investors
in the Portfolio. The percentage so determined is then applied to determine the
value of the investor's interest in the Portfolio as of 12:00 noon, Eastern
time, on the following business day of the Portfolio.
Item 18. Purchase, Redemption and Pricing of Securities.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
<PAGE>
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
The Portfolio normally determines its net asset value as of 12:00 noon,
Eastern time, on each day on which the New York Stock Exchange is open for
trading. As of the date of this Registration Statement, the New York Stock
Exchange will be open for trading every weekday except for the following
holidays (or the days on which they are observed): New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Purchases and withdrawals
will be effected at the time of determination of net asset value next following
the receipt of any purchase or withdrawal order. On days when the financial
markets in which the Portfolio invests close early, the Portfolio's net asset
value is determined as of the close of these markets if such time is earlier
than the time at which the net asset value is normally calculated.
The securities held by the Portfolio are valued at their amortized cost.
Amortized cost valuation involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium. If fluctuating interest rates or other factors cause the market value
of the securities held by the Portfolio to deviate more than 1/2 of 1% from
their value determined on the basis of amortized cost, the Portfolio's Board of
Trustees will consider whether any action should be initiated, as described in
the following paragraph. Although the amortized cost method provides certainty
in valuation, it may result in periods during which the stated value of an
instrument is higher or lower than the price the Portfolio would receive if the
instrument were sold.
Pursuant to the rules of the Securities and Exchange Commission, the
Portfolio's Board of Trustees has established procedures to stabilize the value
of the Portfolio's net assets within 1/2 of 1% of the value determined on the
basis of amortized cost. These procedures include a review of the extent of any
such deviation of net asset value, based on available market quotations. Should
that deviation exceed 1/2 of 1%, the Portfolio's Board of Trustees would
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to the investors in the Portfolio. Such action
may include withdrawal in kind, selling its securities prior to maturity and
utilizing a net asset value as determined by using available market quotations.
The Portfolio maintains a dollar-weighted average maturity of 90 days or less,
does not purchase any instrument with a remaining maturity greater than 397
days or subject to a repurchase agreement having a duration of greater than 397
days, limits its investments, including repurchase agreements, to those U.S.
dollar-denominated instruments that have been determined by or on behalf of the
Portfolio's Board of Trustees to present minimal credit risks and complies with
certain reporting and recordkeeping procedures. The Portfolio has also
established procedures to ensure that securities purchased by it meet its high
quality criteria.
Subject to compliance with applicable regulations, the Portfolio has
reserved the right to pay the redemption price of beneficial interests in the
Portfolio, either totally or partially, by a distribution in kind of readily
marketable securities (instead of cash). The securities so distributed would be
valued at the same amount as that assigned to them in calculating the net asset
value for the beneficial interests being redeemed. If a holder of beneficial
interests received a distribution in kind, such holder could incur brokerage or
other charges in converting the securities to cash.
The Portfolio may suspend the right of redemption or postpone the date of
payment for beneficial interests in the Portfolio more than seven days during
any period when (a) trading in the markets the Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the
Securities and Exchange Commission exists making disposal of the Portfolio's
investments or determination of its net asset value not reasonably practicable;
(b) the New York Stock Exchange is closed (other than customary weekend and
holiday closings); or (c) the Securities and Exchange Commission has by order
permitted such suspension.
<PAGE>
Item 19. Taxation of the Portfolio.
The Portfolio is organized as a trust under New York law. The Portfolio
has determined, on the basis of an opinion of special tax counsel, that it is
properly treated as a partnership for federal and New York income tax purposes.
Accordingly, the Portfolio is not subject to any income tax, but each investor
in the Portfolio must take into account its share of the Portfolio's ordinary
income, expenses, capital gains or losses, credits and other items in
determining its income tax liability. The determination of such share will be
made in accordance with the governing instruments of the Portfolio and the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations
promulgated thereunder.
The Portfolio's taxable year-end is August 31. Although the Portfolio is
not subject to federal income tax, it files appropriate federal income tax
returns.
The Portfolio believes that, in the case of an investor in the Portfolio
that seeks to qualify as a regulated investment company ("RIC") under the Code,
the investor should be treated for federal income tax purposes as an owner of
an undivided interest in the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate share of each of the assets
of the Portfolio and should be entitled to treat as earned by it the portion of
the Portfolio's gross income attributable to that share. Each such investor
should consult its tax advisers regarding whether, in light of its particular
tax status and any special tax rules applicable to it, this approach applies to
its investment in the Portfolio, or whether the Portfolio should be treated, as
to it, as a separate entity as to which the investor has no direct interest in
Portfolio assets or operations.
In order to enable an investor in the Portfolio that is otherwise eligible
to qualify as a RIC under the Code to so qualify, the Portfolio intends to
satisfy the requirements of Subchapter M of the Code relating to the nature of
the Portfolio's gross income and the composition (diversification) of the
Portfolio's assets as if those requirements were directly applicable to the
Portfolio, and to allocate and permit withdrawals of its net investment income
(including net investment income derived from interest on Municipal
Obligations) and any net realized capital gains in a manner that will enable an
investor that is a RIC to comply with the qualification requirements imposed by
Subchapter M of the Code.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income
(including net investment income derived from interest on Municipal
Obligations), net realized capital gains, and any other items of income, gain,
loss, deduction, or credit in a manner intended to comply with the Code and
applicable Treasury regulations.
To the extent the cash proceeds of any withdrawal or distribution exceed
an investor's adjusted tax basis in its partnership interest in the Portfolio,
the investor will generally recognize gain for federal income tax purposes. If,
upon a complete withdrawal (i.e., a redemption of its entire interest in the
Portfolio), the investor's adjusted tax basis in its partnership interest in
the Portfolio exceeds the proceeds of the withdrawal, the investor will
generally recognize a loss for federal income tax purposes. An investor's
adjusted tax basis in its partnership interest in the Portfolio will generally
be the aggregate price paid therefor, increased by the amounts of its
distributive share of items of realized net income (including income, if any,
exempt from Federal income tax) and gain, and reduced, but not below zero, by
the amounts of its distributive share of items of realized net loss and the
amounts of any distributions received by the investor.
There are certain tax issues which will be relevant to only certain of the
Portfolio's investors, specifically, investors which are segregated asset
accounts and investors who contribute assets other than cash to the Portfolio.
It is intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions of
assets will not be taxable provided certain requirements are met.
<PAGE>
The above discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions, or the state, local, or non-United States tax laws
that may be applicable to certain investors. Investors should consult their own
tax advisers with respect to the special tax rules that may apply in their
particular situations, as well as the state, local, or foreign tax consequences
to them of investing in the Portfolio.
Item 20. Underwriters.
The exclusive placement agent for the Portfolio is CFBDS, which receives
no additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio.
Item 21. Calculations of Performance Data.
Not applicable.
Item 22. Financial Statements.
The financial statements contained in the Annual Report of the Portfolio,
as filed with the Securities and Exchange Commission on October 27, 1998
(Accession Number 0000950156-98-000651), for the fiscal year ended August 31,
1998 are incorporated by reference into this Part B.
A copy of the Annual Report of the Portfolio accompanies this Part B.
<PAGE>
PART C
Item 23. Exhibits.
*a(1) Declaration of Trust of the Registrant
*a(2) Amendment to the Declaration of Trust of the Registrant
*b By-Laws of the Registrant
*d Investment Advisory Agreement between the Registrant and Citibank,
N.A., as investment adviser
*e Placement Agency Agreement between the Registrant and CFBDS, Inc.
(formerly known as The Landmark Funds Broker-Dealer Services, Inc.)
("CFBDS"), as exclusive placement agent
*g Custodian Contract between the Registrant and State Street Bank and
Trust Company ("State Street"), as custodian
*h(1) Transfer Agency and Service Agreement between the Registrant and
State Street, as transfer agent
*h(2) Administrative Services Plan of the Registrant
*h(3) Administrative Services Agreement between the Registrant and CFBDS,
as administrator
*h(4) Sub-Administrative Services Agreement between CFBDS and Citibank,
N.A.
n Financial Data Schedule
- ---------------------------------------------------
* Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A (File No. 811-6118) as filed with the Securities and
Exchange Commission on December 30, 1996.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit to its Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under errors and omissions liability
insurance policies. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed
Income Portfolio, Growth & Income Portfolio, Balanced Portfolio, Large Cap
Growth Portfolio, International Equity Portfolio, Government Income Portfolio
and Small Cap Growth Portfolio), U.S. Treasury Reserves Portfolio, Cash
Reserves Portfolio, CitiFundsSM Tax Free Income Trust (CitiFundsSM National Tax
Free Income Portfolio, CitiFundsSM New York Tax Free Income Portfolio and
CitiFundsSM California Tax Free Income Portfolio), CitiFundsSM Multi-State Tax
Free Trust (CitiFundsSM California Tax Free Reserves, CitiFundsSM New York Tax
Free Reserves and CitiFundsSM Connecticut Tax Free Reserves), CitiFundsSM
Institutional Trust (CitiFundsSM Institutional Cash Reserves) and Variable
Annuity Portfolios (CitiSelect VIP Folio 200, CitiSelect VIP Folio 300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500 and CitiFundsSM Small Cap
Growth VIP Portfolio). Citibank and its affiliates manage assets in excess of
$290 billion worldwide. The principal place of business of Citibank is located
at 399 Park Avenue, New York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J.
Menezes is the President and a Director of Citibank. William R. Rhodes and H.
Onno Ruding are Vice Chairmen and Directors of Citibank. The other Directors of
Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc. and Robert I.
Lipp, Chairman and Chief Executive Officer of The Travelers Insurance Group
Inc. and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup
Inc. In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President,
Travelers Property Casualty Corp.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
H. Onno Ruding Supervisory Director, Amsterdamsch Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's placement agent, is also the distributor
for CitiFundsSM International Growth & Income Portfolio, CitiFundsSM
International Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM
<PAGE>
Cash Reserves, CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium
Liquid Reserves, CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM
Institutional Liquid Reserves, CitiFundsSM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves, CitiFundsSM Intermediate
Income Portfolio, CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM Balanced Portfolio, CitiFundsSM Small Cap Value Portfolio,
CitiFundsSM Growth & Income Portfolio, CitiFundsSM Large Cap Growth Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM National Tax Free Income
Portfolio, CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM
California Tax Free Income Portfolio, CitiSelect VIP Folio 200, CitiSelect VIP
Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500, CitiFundsSM
Small Cap Growth VIP Portfolio, CitiSelect Folio 200, CitiSelect Folio 300,
CitiSelect Folio 400, and CitiSelect Folio 500. CFBDS is also the placement
agent for U.S. Fixed Income Portfolio, Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio, Short-Term Portfolio, Growth & Income Portfolio, Large Cap
Growth Portfolio, Small Cap Growth Portfolio, International Equity Portfolio,
Balanced Portfolio, Government Income Portfolio, U.S. Treasury Reserves
Portfolio and Cash Reserves Portfolio. CFBDS also serves as the distributor for
the following funds: The Travelers Fund U for Variable Annuities, The Travelers
Fund VA for Variable Annuities, The Travelers Fund BD for Variable Annuities,
The Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III for
Variable Annuities, The Travelers Fund BD IV for Variable Annuities, The
Travelers Fund ABD for Variable Annuities, The Travelers Fund ABD II for
Variable Annuities, The Travelers Separate Account PF for Variable Annuities,
The Travelers Separate Account PF II for Variable Annuities, The Travelers
Separate Account QP for Variable Annuities, The Travelers Separate Account TM
for Variable Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable Annuities, The
Travelers Separate Account Six for Variable Annuities, The Travelers Separate
Account Seven for Variable Annuities, The Travelers Separate Account Eight for
Variable Annuities, The Travelers Fund UL for Variable Annuities, The Travelers
Fund UL II for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate Account
Two, The Travelers Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account Four, The Travelers Separate
Account MGA, The Travelers Separate Account MGA II, The Travelers Growth and
Income Stock Account for Variable Annuities, The Travelers Quality Bond Account
for Variable Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities,
The Travelers Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth Investments, Large Capitalization
Value Equity Investments, Long-Term Bond Investments, Mortgage Backed
Investments, Municipal Bond Investments, Small Capitalization Growth
<PAGE>
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market
Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio,
Growth Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio,
Select Balanced Portfolio, Select Conservative Portfolio, Select Growth
Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value
Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade
Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC
Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio,
Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International
Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection
Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions
Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund,
AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International
Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP
High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP
Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index
500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond
Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth
Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth
Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High
Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund,
Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable
High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon
Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable
Asia Growth Fund.
(b) The information required by this Item 29 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of
Form BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934
(File No. 8-32417).
(c) Not applicable.
<PAGE>
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in part, at
the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street
(administrator and exclusive Boston, MA 02109
placement agent)
State Street Bank and Trust Company State Street South
(custodian and transfer agent) 1776 Heritage Drive
North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston and Commonwealth of Massachusetts on the 31st day of
December, 1998.
TAX FREE RESERVES PORTFOLIO
By: Philip W. Coolidge
-------------------------
Philip W. Coolidge,
President
<PAGE>
EXHIBIT INDEX
Exhibit: Description:
n Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000864953
<NAME> TAX FREE RESERVES PORTFLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 722,484,060
<INVESTMENTS-AT-VALUE> 722,484,060
<RECEIVABLES> 5,898,496
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,305
<TOTAL-ASSETS> 728,440,861
<PAYABLE-FOR-SECURITIES> 4,465,364
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117,092
<TOTAL-LIABILITIES> 4,582,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 723,858,405
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 723,858,405
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,442,864
<OTHER-INCOME> 0
<EXPENSES-NET> 872,738
<NET-INVESTMENT-INCOME> 20,570,126
<REALIZED-GAINS-CURRENT> 14,275
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,584,401
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,069,295,431
<NUMBER-OF-SHARES-REDEEMED> (849,651,201)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 240,228,631
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,164,274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,680,325
<AVERAGE-NET-ASSETS> 582,137,151
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
